Opinion
No. 346656
04-23-2020
FIRST GOLD BUYERS, INC., Plaintiff-Appellant, v. PLAYERS CHOICE GOLF, LLC, JOSHUA W. HERRERA, LEADING EDGE GOLF, LLC, and BRADLEY T. NAY, Defendants-Appellees.
If this opinion indicates that it is "FOR PUBLICATION," it is subject to revision until final publication in the Michigan Appeals Reports. UNPUBLISHED Ingham Circuit Court
LC No. 15-001028-CB Before: BORRELLO, P.J., and O'BRIEN and CAMERON, JJ. PER CURIAM.
Following a bench trial, a judgment was entered for plaintiff, First Gold Buyers, Inc. ("First Gold"), on its claim of breach of contract against defendant Players Choice Golf, LLC ("Players Choice"), for $111,030, the outstanding principal amount of a loan from First Gold, plus any applicable interest and costs. The trial court entered a judgment of no cause of action against Players Choice, defendant Leading Edge Golf, LLC ("Leading Edge"), and defendant Bradley Nay on First Gold's claims of claim and delivery, fraudulent transfer, and tortious interference. First Gold appeals as of right. We affirm.
On June 28, 2016, the case was closed for administrative purposes as to defendant Joshua Herrera because of a bankruptcy stay.
I. BACKGROUND FACTS
Players Choice was a retail store specializing in golf equipment and its owner, defendant Joshua Herrera, provided golf club fittings for customers. Herrera formed Players Choice in March 2012 as the sole member of the company. Herrera obtained part of the financing to run his business through loans from First Gold after working with its Chief Financial Officer, George Meladze. Players Choice was initially based in Grand Ledge, Michigan, but Herrera later moved the business to an inflatable "golf dome" on Jolly Road in Okemos, Michigan. On March 29, 2015, high winds and a power outage at the dome caused it to collapse, and Herrera lost the majority of his inventory because he was unable to remove it from the deflated dome. On or about May 1, 2015, Herrera moved Players Choice to a storefront at 2805 Jolly Road; however, he had limited inventory to sell and could not order more merchandise because he owed money to his vendors.
On August 7, 2015, First Gold and Players Choice executed a promissory note and security agreement for a loan of $127,030, an amount that included a previous loan of $77,030 and a new loan of $50,000. Players Choice was to repay the loan in daily installments of $350, beginning on October 1, 2015. The note included a late fee provision, under which any installment that was not paid when due was subject to a late charge of $350. Players Choice began making payments on October 7, 2015, and made nine payments of $350 until October 14, 2015. Players Choice made one subsequent payment on November 17, 2015, but First Gold considered Players Choice to be in default on the note as of October 15, 2015.
Nay, who had attended high school with Herrera, visited Players Choice in June 2015 to buy a golf bag. However, Players Choice did not have any inventory for sale. According to Nay, he had been researching opportunities to go into business for himself and settled on the idea of a business featuring golf simulators. Nay formed Leading Edge for this purpose on September 29, 2015. That same month, Nay approached Herrera about leasing space in the Players Choice storefront for his business. Herrera agreed. According to Nay, Herrera told him that Players Choice did not have any inventory because it was in financial trouble and that he owed vendors money, but Herrera did not discuss specific debts or creditors with him. According to Nay, around the beginning of October 2015 it was decided that Leading Edge would occupy the entire storefront leased by Players Choice, and Nay would assume payments on the store's lease. In addition, Leading Edge also used the same phone number that had been used by Players Choice, and assumed the leases of some of the equipment previously leased by Players Choice. Nay hired Herrera to work for Leading Edge as an hourly employee when Herrera ceased to operate Players Choice.
On December 14, 2015, First Gold filed a complaint against defendants, alleging breach of contract, claim and delivery, fraudulent transfer, and tortious interference. Specifically, First Gold alleged that Players Choice and Herrera had failed to make payments pursuant to the terms of the promissory note, and it alleged that it was entitled to all of the property described in the security agreement because of the default. Additionally, First Gold alleged that defendants had violated the Michigan Uniform Fraudulent Transfer Act (MUFTA), MCL 566.31 et seq., by transferring the assets of Players Choice to Leading Edge in violation of the security agreement in order to defraud First Gold. Lastly, First Gold alleged that Leading Edge and Nay had tortiously interfered with its contract and business relationship with Players Choice and had caused Players Choice to breach its contract with First Gold.
The statute is now called the Michigan Voidable Transactions Act, effective April 10, 2017. See 2016 PA 552.
After a bench trial, the trial court found in favor of First Gold on its breach-of-contract claim against Players Choice. However, the trial court concluded that the late fee of $350 per day was an unenforceable liquidated-damages claim. The trial court dismissed First Gold's claims of claim and delivery, fraudulent transfer, and tortious interference after finding that First Gold had failed to establish these claims. This appeal followed.
II. STANDARDS OF REVIEW
"This Court reviews a trial court's findings of fact in a bench trial for clear error and reviews de novo its conclusions of law. A finding is clearly erroneous if, although there is evidence to support the finding, [this Court] on the entire record is left with the definite and firm conviction that a mistake has been made." Ambs v Kalamazoo Co Rd Comm, 255 Mich App 637, 651-652; 662 NW2d 424 (2003) (citations omitted). This Court defers to the trial court's superior ability to assess the credibility of the witnesses. Id. at 652.
This Court reviews de novo whether the trial court properly interpreted and applied the relevant statutes. Henry v Dow Chem Co, 484 Mich 483, 495; 772 NW2d 301 (2009). This Court also reviews de novo matters of statutory and contract interpretation. Epps v 4 Quarters Restoration LLC, 498 Mich 518, 528; 872 NW2d 412 (2015). "[W]hether a liquidated damages provision is valid and enforceable is a matter of law that is reviewed de novo." St Clair Med, PC v Borgiel, 270 Mich App 260, 270-271; 715 NW2d 914 (2006).
III. ANALYSIS
A. TORTIOUS INTERFERENCE
First Gold argues that the trial court erred by finding no cause of action on the tortious interference claim because the evidence admitted at trial established that Nay and/or Leading Edge Golf tortiously interfered with First Gold's business contracts and business expectancies with Players Choice. We disagree.
1. TORTIOUS INTERFERENCE WITH A CONTRACT
In order to establish a claim of tortious interference with a contract, a plaintiff must establish "(1) the existence of a contract, (2) a breach of the contract, and (3) an unjustified instigation of the breach by the defendant." Health Call v Atrium Home & Health Care Servs, 268 Mich App 83, 90; 706 NW2d 843 (2005). See also M Civ JI 125.01 (adding the necessary damage element to the cause of action). The arguments on appeal focus on the third element. This Court has stated the following concerning the third element:
[O]ne who alleges tortious interference with a contractual or business relationship must allege the intentional doing of a per se wrongful act or the doing of a lawful act with malice and unjustified in law for the purpose of invading the contractual rights or business relationship of another. [Formall, Inc v Community Nat'l Bank of Pontiac, 166 Mich App 772, 779; 421 NW2d 289 (1988), quoting Feldman v Green, 138 Mich App 360, 378; 360 NW2d 881 (1984).]
First Gold argues that the trial court erred by concluding that it failed to establish that Leading Edge and/or Nay acted with the purpose of invading First Gold's contractual rights given that there was no evidence to support that Leading Edge or Nay were aware of First Gold's contract with Players Choice. To support this, First Gold points to Meladze's testimony. Meladze testified that, in October or November 2015, he had a phone conversation with Herrera and discussed Herrera's request for additional loans for Players Choice. During this conversation, a third party identified as "Brad" was listening and said "hi." Meladze testified that he did not speak to "Brad" during the call; rather, Herrera asked Meladze questions about information that he wanted Meladze to clarify for his "partner." Although Meladze assumed that the individual identified as "Brad" was Nay, he admitted at trial that he could not be certain that was the case. Nay denied that Herrera had mentioned First Gold to him or that he had participated in conversations with anyone from First Gold, including Meladze.
Based on a review of the record, we conclude that the trial court did not clearly err in finding that this testimony did not establish that Nay or Leading Edge knew about First Gold's contract with Players Choice. Even assuming that Nay was the person identified as "Brad," Meladze did not testify that he and Herrera had discussed First Gold's existing contract with Players Choice during the phone call. Rather, he testified that Herrera had requested an additional loan and that they were discussing the terms and conditions of that loan, if it were to be advanced. First Gold's argument would have required the trial court to assume not only that "Brad" and Nay were the same person, but also that the existing loan was discussed during the same phone call, and that Nay and/or Leading Edge then tortiously interfered with it. The trial court did not err in declining to make these assumptions.
The trial court also properly found that First Gold failed to establish that Leading Edge and/or Nay intentionally or improperly interfered with First Gold's contract with Players Choice. Meladze testified that Players Choice was current on its payments to First Gold until October 14, 2015, although he was aware that the business was "struggling" following the dome collapse. No evidence was offered to support that Players Choice had funds to continue its business operations but that it was prevented from doing so by the improper interference of Nay and/or Leading Edge. Rather, the evidence demonstrates that Players Choice lost of most of its inventory in the dome collapse, and that it was financially unable to continue operating. The trial court did not clearly err in finding that the reason that Players Choice defaulted on the contract was a lack of funds, not interference by Nay and/or Leading Edge.
2. TORTIOUS INTERFERENCE WITH A BUSINESS RELATIONSHIP
The elements of tortious interference with a business relationship or expectancy are (1) the existence of a valid business relationship or expectancy that is not necessarily predicated on an enforceable contract, (2) knowledge of the relationship or expectancy on the part of the defendant interferer, (3) an intentional interference by the defendant inducing or causing a breach or termination of the relationship or expectancy, and (4) resulting damage to the party whose relationship or expectancy was disrupted. Badiee v Brighton Area Schools, 265 Mich App 343, 365-366; 695 NW2d 521 (2005).
As discussed, First Gold did not establish that Leading Edge or Nay knew of the business relationship between itself and Players Choice at the time Players Choice defaulted on the contract, or that Leading Edge and/or Nay intentionally or improperly interfered with their business relationship and caused its termination. Additionally, First Gold did not establish that it had a reasonable likelihood of future economic benefit based on its business relationship with Players Choice. Meladze acknowledged that Players Choice was struggling financially following the dome collapse, and there is no evidence in the record to show that Players Choice would have been able to continue making payments on the loan regardless of any interference by Leading Edge or Nay. Thus, there was no error in the trial court's conclusion that the evidence did not show that any interference by Leading Edge and/or Nay caused the breach of the loan agreement or the disruption of the business relationship. Rather, the evidence indicated that the loan went into default because Players Choice ran out of money.
B. FRAUDULENT TRANSFER
First Gold argues that the trial court erred by "limiting its analysis" regarding whether a fraudulent transfer had occurred as to whether Players Choice fraudulently transferred any of its inventory to Leading Edge. Specifically, First Gold argues that the trial court failed to consider the fact that intangible assets—customer lists, good will, known phone numbers, name recognition, and copyrighted marketing materials—were also fraudulently transferred.
Michigan law defines two types of fraudulent transfers. One focuses on the transferor's actual intent, and the other focuses on the economic realities of a transfer, or constructive fraud. Dillard v Schlussel, 308 Mich App 429, 446; 865 NW2d 648 (2014).
The first encompasses transfers made "[w]ith actual intent to hinder, delay, or defraud" a creditor and applies to transfers made either before or after the creditor's claim arose. MCL 566.34(1)(a). The second, commonly called "fraud in law" or constructive fraud, deems certain transactions fraudulent regardless of the creditor's ability to prove the debtor's actual intent. It applies only to transfers made after the creditor's claim arose. Three elements of proof are required: (1) the creditor's claim arose before the transfer, (2) the debtor was insolvent or became insolvent as a result of the transfer, and (3) the debtor did not receive "reasonably equivalent value in exchange for the transfer. . . ." MCL 566.35(1). [Id. at 446-447.]
Under the MUFTA, a "transfer" is defined as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset. Transfer includes payment of money, release, lease, license, and creation of a lien or other encumbrance." MCL 566.31(q). The statute defines an "asset" as the "property of a debtor," MCL 566.31(b), and "property" is defined as "anything that may be the subject of ownership." MCL 566.31(l).
The definition of "transfer" in the former version of the statue did not consider a license an asset that could be transferred. MCL 566.31(m), as amended by 2016 PA 552. --------
First Gold argues that the transferred assets included "customer lists, good will, known phone numbers, name recognition, and experience." However, no evidence was offered regarding any transferred "known phone numbers." In fact, Meladze testified that he had never personally seen any phone number lists, and Herrera denied that they existed. The only evidence presented by First Gold to show that Players Choice shared its customer list with Leading Edge was Meladze's testimony that he—as the chief financial officer of First Gold—had received an e-mail advertisement from Leading Edge. He was concerned because he had previously received e-mails from Players Choice and had never heard of Leading Edge. However, both Nay and Herrera testified that they had employed Sarah Hayden to handle marketing for their businesses, and that she would have maintained any lists of customer e-mail addresses. Thus, First Gold has not shown that the trial court erred by failing to conclude that a customer list or "known phone numbers" were fraudulently transferred from Players Choice to Leading Edge.
First Gold also has not shown whose "name recognition" was fraudulently transferred. To the extent that First Gold is arguing that Herrera's name recognition and experience as a well-respected club fitter was an asset that was fraudulently transferred to Leading Edge, First Gold offers no support for the idea that name recognition and experience may be considered "property" under the MUFTA. Even if they were, First Gold has not shown that they were fraudulently transferred to Leading Edge. The evidence established that Herrera's skills were useful in the context of a retail environment where he could provide customers with the service of club fitting in conjunction with the sale of golf clubs. Following the dome collapse, Herrera was no longer able to purchase inventory from vendors because of his outstanding debts and so he could not offer any merchandise, including golf clubs, in his store. Thus, if Players Choice was no longer able to profit from Herrera's skills based on his inability to purchase inventory, it is not clear how Herrera's name recognition or experience were assets that, when transferred, would have defrauded First Gold.
First Gold also argues that goodwill is an intangible asset that the trial court failed to consider. According to First Gold, goodwill was attached to the retail storefront, logos, website, marketing plan, and Herrera's national reputation as a highly-skilled club fitter. Further, according to First Gold, goodwill attached to the golf hitting mats that were previously in the Players Choice Golf dome. We conclude that this argument is not persuasive.
Goodwill is defined as "[a] business's reputation, patronage, and other intangible assets that are considered when appraising the business, [especially] for purchase; the ability to earn income in excess of the income that would be expected from the business viewed as a mere collection of assets." Black's Law Dictionary (11th ed). No evidence was offered at trial to suggest that Players Choice and Leading Edge had shared a logo, nor was any evidence offered to show that Players Choice had been associated with any logo which had represented its reputation or ability to earn income beyond the business's assets. Similarly, no evidence was offered to show that the two businesses had utilized the same marketing plan, that the storefronts were identical, or that they had shared a website. Rather, Meladze testified that he had been redirected to the website of Leading Edge when he had tried to visit the website of Players Choice. Although this evidence supports one of the trial court's findings that there were suspicious circumstances surrounding the origins of Leading Edge, it is unclear how this supports the claim that goodwill was improperly transferred to Leading Edge when customers, potential customers, or other visitors to the website of Players Choice were redirected to the website of Leading Edge. Although it is reasonable to conclude that Leading Edge benefitted from the user traffic that was directed to its website from the Players Choice website, no testimony was offered regarding this issue or regarding the value of the website as an asset. The only item listed by First Gold that could arguably be defined as "goodwill" was Herrera's reputation as a club fitter. However, as already discussed, given that Players Choice was no longer able to profit from Herrera's skills based on his inability to purchase inventory, it is not clear how Herrera's name recognition or experience were assets that, when transferred, would have defrauded First Gold.
Additionally, First Gold's assertion that goodwill attached to hitting mats, which are tangible assets, does not comport with the definition of goodwill. Evidence presented at trial indicates that, at the time it ceased business operations, Players Choice's inventory included unsold hitting mats which remained in the storefront during and after Leading Edge began operating there. Although there was testimony that the hitting mats were advertised for sale, the trial court reasonably found that Leading Edge did not sell the mats, but that they "were seized in an execution and public sale in 2016 in connection with a lawsuit by another creditor." Thus, First Gold has not shown that the mats were improperly transferred to Leading Edge by Players Choice. Regardless, because the mats were tangible property, goodwill could not have attached to them as First Gold asserts. The mats were merchandise and had nothing to do with the business reputation of Players Choice or Herrera.
In sum, the trial court did not err by concluding that First Gold failed to establish its fraudulent transfer claim.
C. LIQUIDATED DAMAGES
Finally, First Gold argues that the trial court erred as a matter of law by relying on MCL 440.2102 when concluding that the liquidated damages clause was unenforceable. Even assuming that the trial court's reliance on the MCL 440.2102 was misplaced, we conclude that the trial court's conclusion that the liquidated-damages clause was unenforceable as an unreasonable penalty was appropriate.
The late charge provision in the promissory note provided as follows:
If any installment of interest is not paid when due, [Players Choice] will immediately pay to the holder of this note a late charge of $350.00. This is in addition to the holder's other rights and remedies for default in payment of an installment of interest when due.
First Gold does not dispute the trial court's characterization of the late fee provision in the promissory note as a liquidated-damages clause; rather, it asserts that the trial court erred as a matter of law by finding the provision unenforceable.
This Court has held that "late fees are similar to liquidated damages, in that they are contractual obligations designed to cover expenses engendered by a breach of contract." Souden v Souden, 303 Mich App 406, 419; 844 NW2d 151 (2013). "A liquidated damages provision is simply an agreement by the parties fixing the amount of damages in the event of a breach and is enforceable if the amount is reasonable with relation to the possible injury suffered and not unconscionable or excessive." St Clair Med, 270 Mich App at 270-271. Further, "[s]uch a provision is particularly appropriate where actual damages are uncertain and difficult to ascertain or are of a purely speculative nature[.]" Id. at 271 (quotation marks and citation omitted). In order for late fees to be liquidated damages, the damages must be uncertain and the late fees must closely approximate the damages. E F Solomon v Dep't of State Hwys & Transp, 131 Mich App 479, 483-484; 345 NW2d 717 (1984).
First Gold asserts that the late fee was enforceable because the parties "negotiated" the promissory note and the record shows that Players Choice entered into the contract voluntarily. However, First Gold has not provided any authority to support its assertion that a late fee provision may not be found to be unreasonable where the parties entered into the contract voluntarily. In fact, this Court held in St Clair Med, 270 Mich App at 271, that a liquidated-damages provision is enforceable if the amount is "not unconscionable or excessive." The St Clair Med Court did not hold that, even if the amount is determined to be unconscionable, courts must still enforce it provided that the parties entered into the agreement voluntarily. Additionally, our Supreme Court has held that where the parties have included a liquidated-damages provision in their agreement, as a matter of policy and equity, a court will award actual damages for a breach and ignore the liquidated-damages clause if the parties' agreement on damages is clearly unjust and unconscionable. Worley v McCarty, 354 Mich 599, 604-606; 93 NW2d 269 (1958); Curran v Williams, 352 Mich 278, 282-283; 89 NW2d 602 (1958). Thus, First Gold's argument that the late fee provision is enforceable simply because the parties entered into the promissory note voluntarily is not supported by any relevant authority.
Next, First Gold argues that the late fee clause was reasonable because "it directly related to the amount of payment due on a single day" and because it considered the amount of the loan, the risk associated with it, "and the affirmative representations by Players Choice Golf and Mr. Herrera regarding their ability to fulfill their obligations under the loan." We disagree.
The liquidated damages provision provides for late fees in the event that Players Choice breached the agreement by failing to make the daily payment in the amount of $350. In the event of such a breach, Players Choice would be required to pay $350. Consequently, the late fee permits First Gold to double the amount of the repayment installment for every late daily payment. Contrary to First Gold's arguments on appeal, there is no evidence to support that this formula is reasonable in relation to First Gold's potential injury from Players Choice's breach of the agreement. Indeed, Meladze admitted that the "penalty" contained in the promissory note was "pretty harsh" and was designed to "discourage any kind of default . . . ." There is also no indication that actual damages were uncertain or difficult to ascertain. Rather, as noted by the trial court, First Gold's loss for the breach of a contract for the loan of money could be easily measured by the outstanding balance, plus interest. First Gold has not explained on appeal why the accrual of interest due on the loan plus repayment of the principal was not sufficient to compensate it for its financial loss resulting from the breach of contract. Consequently, we conclude that the trial court did not err by concluding that the late fee provision was an unenforceable liquidated-damages clause.
Affirmed.
/s/ Stephen L. Borrello
/s/ Colleen A. O'Brien
/s/ Thomas C. Cameron